The Specter of E-Ghost Looms

While many of their boasts proved shaky in hindsight, e-tailers did manage to pull off one undeniably unprecedented feat: They merged two distinct holidays, Halloween and Christmas, into one.

Come holiday shopping time, ghosts of out-of-stock items haunted the virtual shelves at e-tail shops that either failed to anticipate demand or to line up reliable distribution centers.

Spectral orders for children's toys, pricey computers, and gift-wrapped Ginsu knives hung unfulfilled in the purgatory of cyberspace as shoppers searched in vain for an e-mail address, a phone number – anything – that might lead to a living human.

Packages disappeared into the ether without a trace (or a tracking number). Misdirected or mangled orders often came to stay because scores of e-tailers had no return policy.

By Christmas day, many an ashen-faced parent was forced to deliver sad news: E-Santa wouldn't be coming this year. He forgot to set up his fulfillment system.

"Last December, many retailers ended up looking more like Scrooge than Santa," said Jodie Bernstein, director of the Federal Trade Commission's Bureau of Consumer Protection, in a press release detailing e-tailers' nightmare before, during, and after Christmas.

In a mad rush for market share, the FTC concluded, online retailers simply promised much, much more than they were prepared to deliver.

The FTC responded by slapping seven online sellers with steep fines. Toysrus.com had to pony up $350,000 after 1 in 20 kids failed to get their toys by Christmas as promised.

KBkids.com, CDNow, Patriot Computer, Macys.com, Minidiscnow.com, and The Original Honey Baked Ham Company also paid five- and six-figure fines to settle a bevy of charges.

In all, 40 percent of U.S. Web buyers reported trouble with online shopping sites during the 1999 holiday season, according to a survey by Andersen Consulting.

While the Net's biggest retailers like Amazon and EToys escaped FTC fines, they generated plenty of their own holiday horror stories.

In a desperate attempt to meet promised shipping dates, Amazon ended up sending thousands of split orders, in which different parts of a single customer's order were shipped at different times from different distribution centers – all at enormous cost to Amazon. The company also upgraded many shipments to second-day delivery, eating the upgrade costs along with any profit margins.

EToys also struggled, and added to its woes by getting embroiled in a nasty, ultimately fruitless domain squabble with the European artists' group etoy. The resulting bad press made eToys look more like a nasty corporate ogre than a kid-friendly shopping site.

Investors responded by whacking e-tail stocks long before the rest of the dot-com market plunged in March. EToys fell from $60 a share in December to $20 per share in late January. Amazon dropped from $105-plus to $60 in the same period.

"It tarnished all of us," said eToys CEO Toby Lenk of last year's holiday fiasco. "I'm glad the arms race is over."

It remains to be seen whether the innovative Halloween-in-December concept is a thing of the past, too.